USD/JPY – Tax Reform Bill, Strong US Job Report Pushes Dollar Higher

USD/JPY has posted gains in the Tuesday session, erasing the gains seen on Monday. In North American trade, USD/JPY is trading at 114.09 up 0.34% on the day. On the release front, Japanese Average Cash Earnings remained unchanged at 0.9%, above the forecast of 0.6%. In the US, JOLT Job Openings edged up to 6.09 million, easily beating the estimate of 5.98 million. Later in the day, Fed Chair Janet Yellen will speak at an event in Washington.

Investors can expect more of the same from the Bank of Japan regarding its ultra-accommodative stimulus package. The minutes from the October meeting indicated that many of the board members were satisfied that the inflation target of around 2 percent would be met under current policy, even though inflation has persistently remained well below the target. BoJ Governor Kuroda echoed the message in the minutes, expressing optimism that the improving economy will boost inflation. Kuroda called the economic expansion “highly sustainable”, and the markets took his optimism as a sign that the BoJ has no plans to inject further stimulus in the near future.

The markets are wishing President Trump godspeed, as he tries to pass his tax reform bill through Congress. If Trump is successful, it would mark the first major tax reform since President Reagan was president. Trump suffered a humiliating defeat with his failed health care proposal, and the President has now set his sights on tax reform. Trump wants new legislation in place before the end of the year, but that will be a tall order, as most Democrats have come out against the proposal and not all Republicans are on board. The bill would cut corporate taxes from 35% to 20%, but predictably, Democrat and Republican lawmakers are at odds as to whether the bill will lower taxes for the middle class. Expectations that Trump will cut taxes has been the catalyst for a stock market rally over the past year, and if the bill does become law, the US dollar will likely gain ground.

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Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.